Liberty/Ziggo and Liberty/DeVijverMedia Phase II cable TV mergers in the Netherlands and Belgium
Thomas Buettner CET, DG COMP, European Commission
ACE Annual Conference, Milan, 27 November 2015
Disclaimer: the views expressed are those of the presenter and cannot be regarded as stating an official position of the European Commission. 2 recent cable mergers…
Liberty Global / Ziggo Liberty Global/ De Vijver Media
Netherlands Belgium (Flanders)
(Mainly) horizontal merger Vertical merger
Two cable operators (each with Cable operator acquires stake in premium pay TV channels) broadcasting JV
Clearance with remedies Clearance with remedies October 2014 February 2015 Phase II Phase II No SO No SO Liberty Global (UPC) / Ziggo Liberty (UPC) / Ziggo
UPC (Liberty) and Ziggo (target) are cable operators with non-overlapping footprints Merged entity has national footprint One main competitor KPN also with ZIGGO(cable) UPC/Liberty(cable) national coverage
Merger also brings together 3 out of 4 premium pay TV channels: UPC: Film1 and Sports1 Ziggo: HBO film channel (JV) Liberty/Ziggo: Main Theories of Harm
1. Elimination of (indirect) competition between of cable infrastructures? • Non-coordinated effects (sequential pricing) • Coordinated effects (increased symmetry) -> Concerns dropped early in phase II
2. Concerns re premium pay-TV film channels -> Addressed with commitment to divest Film 1
5 Liberty/Ziggo: Main Theories of Harm
3. Increased (bargaining) power vis-à-vis broadcasters
• Increased subscriber base increases bargaining power (Evidence size effect on license fees/sub from market investigation, correlations)
TOHs 3a: Waterbed effect • lower fees paid to broadcasters by merged entity would lead to higher fees for rival platforms
-> Concern dropped in phase II
6 Liberty/Ziggo: Main Theories of Harm
3. Increased (bargaining) power vis-à-vis broadcasters
TOHs 3b: OTT concern
• Pre-merger "attempts" to prevent internet based distribution of content "over the top" (OTT) contractually
• Concern: merged entity could "force" broadcasters not to engage in OTT contractually or could frustrate OTT technically
-> Addressed by commitment: • not to restrict OTT through contractual means • to keep interconnection with internet transit providers uncongested 7 Liberty Global (Telenet) / De Vijver Media 9
TV Broadcasters TV Retailers OTT ABLE C Medialaan (~30%) ATELLITE S VRT (~40%) IPTV IPTV ABLE C Liberty [70-80%] DVM (11%) DVM 50% Liberty stake stake 50% Liberty (JV) DVM in Liberty / DeVijverMedia (Belgium) Liberty / DVM: Main Theories of Harm
1. Input foreclosure (total/partial) Rival TV distributors would be foreclosed from distributing the Flemish language channels Vier and Vijf
2. Customer foreclosure (partial) Non-DVM channels would be disadvantaged on the Telenet’s distribution platform
10 Liberty / DVM: Input foreclosure
DVM(11%) Liberty Ability: [70-80%] Vier/Vijf important channels Control of DVM decisions (legal assessmt)
Incentives: VRT(~40%) Total foreclosure: subscriber gains likely X outweigh DVM losses (vertical arithmetic)
Partial foreclosure: DVM can extract X [10-20%] higher licensing fees from Telenet's Medialaan (~30%) competitors (Nash bargaining)
Effects: Less consumer choice/higher prices Strengthening of Telenet dominance and entry barriers Broadcasters/ TV Retailers/ 11 viewer shares sub shares Liberty/DVM: Partial input foreclosure
Nash bargaining approach (see also Rogerson on NewsCorp/DirectTV, Comcast/NBCU mergers)
License fee: =μ B−b)−(1−μ)(D−d+T−t (to DVM) DVM's Belgacom's DVM's Telenet's bargaining gains from gains from costs of parameter trade trade trade
∆ = μ +∆ Profits from total foreclosure Surplus relative to status quo (vertical arithmetic)
• Threat of total foreclosure strengthens bargaining position of DVM
• Increase in license fee exceeds profits from total foreclosure
• Magnitude of "price" (i.e. fee) increase can be very big in percentage terms 12 Liberty / DVM: Customer foreclosure
DVM(11%) Liberty Total foreclosure: unlikely [70-80%] (vertical arithmetic)
Partial foreclosure: Reduce quality of rival channels VRT(~40%) X Lower EPG position / worsening of non-linear services/ recommendations etc. Lower channel license revenues X [10-20%] Medialaan (through greater bargaining power) (~30%) Effects: Likely reduced viewer experience/choice Likely reduced investment incentives for rivals through lower advertising and Broadcasters/ TV Retailers/ license revenues 13 viewer shares sub shares Liberty/DVM: Solutions Developments before Decision: Input foreclosure DVM signed carriage agreements with Belgacom, Mobistar, Snow DVM made binding offer to M7 (TV Vlaanderen)
Customer foreclosure Telenet signed carriage agreement with VRT Telenet made binding and irrevocable offer to Medialaan
Formal commitments in Decision: Access to Vier/Vijf + ancillary rights on FRAND terms (+anti-circumventions clauses) Offer to Medialaan valid for six months
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